Catenaa, Friday, September 19, 2025- The US Securities and Exchange Commission voted to let companies going public require investors to settle fraud claims through arbitration instead of class action lawsuits, delivering a major win for corporations and a blow to shareholder rights.
The decision, passed 3-1 along party lines, reverses a decades-old SEC stance that had blocked IPOs for firms attempting to ban shareholder class actions in their bylaws.
Chair Paul Atkins said the agency should not dictate how companies resolve disputes.
Commissioner Caroline Crenshaw, the panel’s lone Democrat, denounced the shift, warning it would push most investors into costly arbitration and keep corporate misconduct hidden.
Investor advocates argue class actions provide transparency, deter wrongdoing, and help small shareholders recover damages that arbitration often denies.
Corporate lobbyists and Republicans have long pushed for the change, arguing companies need protection from what they see as frivolous lawsuits.
The issue first gained traction in 2012, when the SEC opposed Carlyle Group’s IPO bid to mandate arbitration for shareholders.
Legal experts say Wednesday’s policy will spark a wave of IPO hopefuls seeking to shield themselves from collective lawsuits, with established public companies likely to follow.
CalPERS, the California public pension fund, warned in a letter that the move weakens the deterrent effect of class actions.
In a separate decision, the SEC extended the deadline for private investment funds to meet new disclosure requirements under Biden-era rules.
